U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
---------------------- ---------------------
Commission file number: 0-8328
DYNAMIC MATERIALS CORPORATION
(Name of small business issuer in its charter)
COLORADO 84-0608431
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
551 ASPEN RIDGE DRIVE, LAFAYETTE 80026
(Address of principal executive office) (Zip Code)
Issuer's telephone number, including Area Code (303) 665-5700
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.05 PAR VALUE
(TITLE OF CLASS)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes / X / No / /
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,717,958 SHARES OF COMMON
STOCK AS OF OCTOBER 31, 1997.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
DYNAMIC MATERIALS CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 16,228 $ 209,650
Accounts receivable, net of allowance for
doubtful accounts of $239,519 and $170,000,
respectively 5,738,020 6,176,589
Inventories (Note 3) 1,986,942 4,828,828
Prepaid expenses and other 620,239 150,951
Deferred tax asset 287,950 287,950
------------ ------------
Total current assets 8,649,379 11,653,968
PROPERTY, PLANT AND
EQUIPMENT 5,911,443 5,421,680
Less- Accumulated depreciation (2,862,537) (2,426,870)
------------ ------------
Property, plant and equipment--net 3,048,906 2,994,810
INTANGIBLE ASSETS, Net of accumulated amortization
of $277,885 and $188,344,
respectively 1,259,346 1,337,480
OTHER ASSETS 191,850 498,982
------------ ------------
TOTAL ASSETS $ 13,149,481 $ 16,485,240
============ ============
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
1
<PAGE>
DYNAMIC MATERIALS CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Bank overdraft $ -- $ 743,471
Accounts payable 1,532,182 2,255,190
Accrued expenses 1,215,872 990,959
Current maturities of long-term debt 91,466 94,636
Current portion of capital lease 28,685 27,528
----------- -----------
Total current liabilities 2,868,205 4,111,784
LINE OF CREDIT -- 3,930,000
LONG-TERM DEBT 23,121 89,857
CAPITAL LEASE OBLIGATION 79,048 100,639
DEFERRED TAX LIABILITY 27,200 27,200
----------- -----------
Total liabilities 2,997,574 8,259,480
STOCKHOLDERS'EQUITY
Convertible preferred stock, $.05 par value;
4,000,000 shares authorized: no issued and
outstanding shares -- --
Common stock, $.05 par value; 15,000,000 shares
authorized; 2,717,958 and 2,539,323 shares
issued and outstanding, respectively 135,877 126,967
Additional paid-in capital 6,282,827 5,971,076
Retained earnings 3,733,203 2,127,717
----------- -----------
10,151,907 8,225,760
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,149,481 $16,485,240
=========== ===========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
2
<PAGE>
DYNAMIC MATERIALS CORPORATION
CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 7,803,059 $ 7,754,903 $25,462,599 $19,458,900
COST OF PRODUCTS SOLD 6,013,006 6,111,829 19,677,769 15,511,568
----------- ----------- ----------- -----------
Gross Profit 1,790,053 1,643,074 5,784,830 3,947,332
COSTS AND EXPENSES:
General and administrative
expenses 514,668 426,018 1,521,739 1,167,123
Selling expenses 490,212 383,021 1,538,389 988,792
Research and development costs 104,951 82,004 304,367 250,143
----------- ----------- ----------- -----------
1,109,831 891,043 3,364,495 2,406,058
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 680,222 752,031 2,420,335 1,541,274
Other income 257 124 23,763 9,098
Interest expense (15,135) (77,177) (105,419) (91,011)
Interest income 14,720 30,340 21,807 45,957
----------- ----------- ----------- -----------
Income before income tax
provision 680,064 705,318 2,360,486 1,505,318
INCOME TAX PROVISION 217,143 264,000 755,000 560,000
----------- ----------- ----------- -----------
NET INCOME $ 462,921 $ 441,318 $ 1,605,486 $ 945,318
=========== =========== =========== ===========
NET INCOME PER $ 0.16 $ 0.16 $ 0.56 $ 0.35
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 2,880,891 2,700,657 2,879,216 2,669,729
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
DYNAMIC MATERIALS CORPORATION
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,605,486 $945,318
Adjustments to reconcile net income to net cash from
operating activities-
Depreciation 435,667 263,068
Amortization 78,134 23,391
Decrease (increase) in-
Accounts receivable, net 438,569 576,662
Inventories 2,841,886 999,262
Prepaid expenses and other (469,288) 63,069
Increase (decrease) in-
Bank overdraft (743,471) --
Accounts payable (723,008) 515,520
Accrued expenses 224,913 449,698
---------- ----------
Net cash flows from operating activities 3,688,888 3,835,988
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (205,477) (270,741)
Purchase of Detaclad net assets (5,291,871)
Change in other non-current assets 22,846 (77,677)
---------- ----------
Net cash flows used in investing activities (182,631) (5,640,289)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit, net (3,930,000) 2,700,000
Payments on long-term debt (69,906) (58,494)
Payments on capital lease obligation (20,434) --
Net proceeds from issuance of common stock 320,661 71,448
---------- ----------
Net cash flows used in financing activities (3,699,679) 2,712,954
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS (193,422) 908,653
CASH AND CASH EQUIVALENTS, beginning of period 209,650 487,573
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 16,228 $1,396,226
========== ==========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
4
<PAGE>
DYNAMIC MATERIALS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The information included in the Condensed Financial Statements is unaudited, but
includes all adjustments which are, in the opinion of management, necessary for
a fair presentation of the interim periods presented. These Condensed Financial
Statements should be read in conjunction with the Company's 1996 Annual Report
filed on Form 10-KSB.
2. ACQUISITION OF DETACLAD(R) BUSINESS OF E. I. DUPONT DE NEMOURS AND COMPANY
On July 22, 1996, the Company acquired certain assets of the Detaclad Business
of E.I. DuPont de Nemours and Company (DuPont). Detaclad designs, manufactures
and distributes explosion bonded clad metal plates and also provides explosive
shock syntheses services to DuPont in connection with DuPont's production of
industrial diamonds. The total purchase price of $5,321,850 included $5,024,233
in cash payments to Dupont, $250,576 in acquisition related expenses and the
assumption of accrued liabilities in the amount of $47,041. Assets acquired
consisted principally of trade accounts receivable, inventories, machinery and
equipment, leasehold improvements and trade names used in the business, as well
as subleases of the facilities at which the Detaclad business is conducted. The
Detaclad acquisition was financed with Company cash and borrowings under a
revolving credit facility with KeyBank of Colorado.
The acquisition has been accounted for using the purchase method of accounting.
The purchase price was allocated to the assets acquired based on their
approximate fair market values at the purchase date. The results of operations
of Detaclad since the July 22, 1996 purchase date are included in the Company's
condensed financial statements.
The following unaudited pro forma results of operations of the Company for the
nine months ended September 30, 1996 assumes that the acquisition of Detaclad
had occurred on January 1, 1996. These pro forma results are not necessarily
indicative of the actual results of operations that would have been achieved nor
are they necessarily indicative of future results of operations.
Revenues $25,383,900
Net Income $ 1,024,318
Net Income Per Share $ .41
5
<PAGE>
3. INVENTORIES
This caption on the Condensed Balance Sheets includes the following:
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
Raw Materials $ 437,229 $ 600,942
Work-in-Process 1,222,838 3,997,680
Supplies 326,875 230,206
---------- ----------
$1,986,942 $4,828,828
========== ==========
4. NET INCOME PER COMMON SHARE:
Net income per common share has been computed based upon the weighted average
number of shares of common stock and common stock equivalents outstanding during
each period. Common stock equivalents recognize the potential dilutive effects
of the future exercise of common stock options.
Statement of Financial Accounting Standards No. 128 ("SFAS 128), "Earnings per
Share", supersedes APB Opinion 15 ("APB 15"), "Earnings per Share", and is
effective for interim and annual periods ending after December 15, 1997. While
early application of SFAS 128 is prohibited, footnote disclosure of pro forma
earnings per share ("EPS") under the new standard is permitted. SFAS 128
replaces primary EPS with basic EPS and fully diluted EPS with diluted EPS.
Basic EPS is computed by dividing net income by the weighted average number of
shares of common stock outstanding during the period. Diluted EPS recognizes the
potential dilutive effects of the future exercise of common stock options
utilizing the same computations that the Company currently uses to compute
primary EPS under APB 15. Pro forma earnings per share for the three months and
nine months ended September 30, 1997 and 1996 under SFAS 128 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, 1997 SEPT. 30, 1996 SEPT. 30, 1997 SEPT. 30,1996
-------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
Basic earnings per share $ .17 $ .17 $ .60 $ .38
Shares outstanding 2,714,371 2,527,000 2,669,434 2,516,796
Diluted earnings per $ .16 $ .16 $ .56 $ $ .35
Shares outstanding 2,880,891 2,700,657 2,879,216 2,669,729
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion should be read in conjunction with the
condensed financial statements included elsewhere within this quarterly report.
Fluctuations in annual and quarterly operating results may occur as a result of
certain factors such as the size and timing of customer orders and competition.
Due to such fluctuations, historical results and percentage relationships are
not necessarily indicative of the results for any future period. Statements
which are not historical facts contained in this report are forward-looking
statements that involve risks and uncertainties that could cause actual results
to differ materially from projected results. Factors that could cause actual
results to differ materially include, but are not limited to, the following: the
ability to obtain new contracts at attractive prices; the size and timing of
customer orders; fluctuations in customer demand; competitive factors; the
timely completion of contracts; and general economic conditions, both
domestically and abroad. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's analysis only as of
the date hereof. The Company undertakes no obligation to publicly release the
results of any revision to these forward-looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. The Company further directs readers to the
factors discussed in the Company's Form 10-KSB for the year ended December 31,
1996 and Forms 10-QSB.
GENERAL
Dynamic Materials Corporation ("DMC" or the "Company"), formerly
Explosive Fabricators, Inc., was incorporated in Colorado in 1971. DMC is a
worldwide leader in the high energy metal working business. The high energy
metal working business includes the use of explosives to perform both
metallurgical bonding, or metal "cladding," and metal forming. The Company
performs metal cladding using its proprietary Dynaclad(TM) and Detaclad(R)
technologies and performs metal forming using its proprietary Dynaform(TM)
technology. The Company generates approximately 90% of its revenues from its
metal cladding business and approximately 10% of its revenues from its metal
forming business.
Metal Cladding. Clad metal products are used in manufacturing processes
or environments that involve highly corrosive chemicals, high temperatures
and/or high pressure conditions. For example, the Company fabricates clad metal
tube sheets for heat exchangers. Heat exchangers are used in a variety of high
temperature, high pressure, highly corrosive chemical processes, such as
processing crude oil in the petrochemical industry and processing chemicals used
in the manufacture of synthetic fibers. The Company believes that its clad metal
products are an economical, high-performance alternative to the use of solid
corrosion-resistant alloys.
Metal Forming. Formed metal products are made from single sheets of
metal that are formed into a single part in place of a welded assembly of
multiple components. For example, the Company fabricates structural and engine
components, such as torque box webs used in jet engine nacelles for the aircraft
industry. The Company believes that its formed metal products provide a number
of advantages over welded assemblies, including lower assembly and inspection
costs, improved reliability, reduced overall weight and increased overall
strength.
The Company is continually working to generate solutions to the materials
needs of customers in its target markets. Key elements of the Company's strategy
include continual improvement of its basic processes and product offerings, the
internal development of new cladding and forming products and the acquisition of
businesses that broaden or complement the Company's existing product lines. In
July 1996, the Company completed its first strategic acquisition when it
acquired the assets of the
7
<PAGE>
Detaclad(R) Division ("Detaclad") of E.I. du Pont de Nemours and Company
("DuPont"), a complementary explosion cladding business with expertise in
cladding thin metals and heat exchanger components primarily for the chemical
processing, power generation and petrochemical industries. In addition, the
Company has recently completed production of titanium clad plates used in the
fabrication of metal autoclaves to replace autoclaves made of brick and lead for
two customers in the mining industry.
On July 22, 1996, the Company completed the acquisition of Detaclad for
a purchase price of $5,321,850, including $250,576 of acquisition-related
expenses and the assumption of $47,041 in liabilities. The Detaclad assets
represent an approximate 50% increase in the Company's total assets from
December 31, 1995. As operated by DuPont, Detaclad generated approximately
$11,200,000 in sales revenues in the year ended December 31, 1995. Accordingly,
the Company's results of operations subsequent to the acquisition will not be
directly comparable with the pre-acquisition results.
The Company has experienced, and expects to continue to experience,
quarterly fluctuations in operating results caused by various factors, including
the timing and size of orders by major customers, customer inventory levels,
shifts in product mix, the occurrence of acquisition-related costs and general
economic conditions. In addition, the Company typically does not obtain
long-term volume purchase contracts from its customers. Quarterly sales and
operating results therefore depend on the volume and timing of backlog as well
as bookings received during the quarter. A significant portion of the Company's
operating expenses is fixed, and planned expenditures are based primarily on
sales forecasts and product development programs. If sales do not meet the
Company's expectations in any given period, the adverse impact on operating
results may be magnified by the Company's inability to adjust operating expenses
sufficiently or quickly enough to compensate for such a shortfall. In addition,
the Company uses numerous suppliers of alloys, steels and other materials for
its operations. The Company typically bears a short-term risk of alloy, steel
and other component price increases, which could adversely affect the Company's
gross profit margins. Although the Company will work with customers and
suppliers to minimize the impact of any component shortages, component shortages
have had, and are expected to have from time to time, short-term adverse effects
on the Company's business. Results of operations in any period should not be
considered indicative of the results to be expected for any future period.
Fluctuations in operating results may also result in fluctuations in the price
of the Company's Common Stock.
8
<PAGE>
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO SEPTEMBER 30, 1996
The following table sets forth for the periods indicated the percentage
relationship to net sales of certain income statement data:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Products 77.1% 78.8% 77.3% 79.7%
Manufactured ----- ----- ----- -----
Gross Margin 22.9% 21.2% 22.7% 20.3%
General & Administrative 6.6% 5.5% 6.0% 6.0%
Selling Expenses 6.3% 4.9% 6.0% 5.1%
R & D 1.3% 1.1% 1.2% 1.3%
Interest Expense 0.2% 1.0% 0.4% 0.5%
Income Tax Provision 2.8% 3.4% 3.0% 2.9%
Net Income 5.9% 5.7% 6.3% 4.9%
</TABLE>
NET SALES. Net sales for the quarter ended September 30, 1997 increased 0.6% to
$7,803,059 from $7,754,903 in the third quarter of 1996. For the nine months
ended September 30, 1997, net sales increased 30.9% to $25,462,599 from
$19,458,900 in the comparable period of 1996. This increase was primarily
attributable to strong first quarter shipments against a large December 31, 1996
backlog of orders, including two large orders that generated approximately $3.2
million in sales during the first quarter of 1997, and the July 22, 1996
acquisition of Detaclad.
GROSS PROFIT. As a result of an improvement in the Company's gross margin rate,
gross profit for the quarter ended September 30, 1997 increased by 8.9% to
$1,790,053 from $1,643,074 in the third quarter of 1996. The gross profit margin
for the quarter ended September 30, 1997 was 22.9%, representing an 8% increase
from the gross profit margin of 21.2% for the third quarter of 1996. For the
nine months ended September 30, 1997, gross profit increased 46.6% to $5,784,830
from $3,947,332 in the comparable period of 1996. The gross profit margin for
the nine months ended September 30, 1997 was 22.7%, representing an 11.8%
increase from the gross profit margin of 20.3% for the first nine months of
1996. The increases in the gross margin rate for both the three and nine month
periods are principally due to proportionately higher sales of formed products
and industrial diamond services, both of which carry significantly higher
margins than sales of clad metal plates.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the
quarter ended September 30, 1997 increased 20.8% to $514,668 from $426,018 in
the third quarter of 1996. For the nine months ended September 30, 1997, general
and administrative expenses increased 30.4% to $1,521,739 from $1,167,123 in the
comparable period of 1996. These increases reflect
9
<PAGE>
higher expense levels in a number of categories, including compensation, legal
fees, travel and amortization of goodwill and intangibles. General and
administrative expenses are expected to remain at these higher 1997 levels to
support the Detaclad operations, increased sales activity and other strategic
business initiatives. As a result of these higher spending levels, general and
administrative expenses, as a percentage of net sales, increased from 5.5% in
the third quarter of 1996 to 6.6% for the quarter ended September 30, 1997. For
the nine months ended September 30, 1997 and 1996, general and administrative
expenses remained flat at 6.0% of net sales for both periods as the 30.9%
increase in year-to-date net sales was offset by increases in 1997 spending
levels.
SELLING EXPENSES. Selling expenses increased by 28.0% to $490,212 for the
quarter ended September 30, 1997 from $383,021 in the third quarter of 1996. For
the nine months ended September 30, 1997, selling expenses increased 55.6% to
$1,538,389 from $988,792 in the comparable period of 1996. These increases
reflect higher expense levels in a number of categories, including compensation
and benefits, advertising and promotion, reserves for bad debts and travel and
entertainment expenses. Selling expenses are expected to remain at these higher
1997 levels due to staffing increases during the last half of 1996 that are
attributable to the Detaclad acquisition, general business growth and expansion
of the Company's domestic and international marketing activities. As a result of
these higher spending levels, selling expenses, as a percentage of net sales,
increased from 4.9% in the third quarter of 1996 to 6.3% for the quarter ended
September 30, 1997, and from 5.1% for the nine months ended September 30, 1996
to 6.0% for the comparable period of 1997.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs decreased 28.0%
to $104,951 for the quarter ended September 30, 1997 from $82,004 in the third
quarter of 1996. For the nine months ended September 30, 1997, research and
development costs increased 21.7% to $304,367 from $250,143 in the comparable
period of 1996. These increases reflect increased contract labor and travel
expenses associated with current year new product and process development
programs.
INCOME FROM OPERATIONS. Income from operations decreased 9.5% to $680,222 for
the quarter ended September 30, 1997 from $752,031 in the third quarter of 1996.
This decrease is attributed to a $218,788 aggregate increase in operating
expense more than offsetting a $146, 979 increase in gross profit, which
resulted principally from an improvement in the gross margin rate to 22.9% for
the quarter ended September 30, 1997 from 21.2% in the third quarter of 1996.
For the nine months ended September 30, 1997, income from operations increased
57.0% to $2,420,335 from $1,541,274 in the comparable period of 1996. This
increase is a direct result of the 30.9% increase in net sales combined with an
improvement in the gross margin rate to 22.7% for the nine months ended
September 30, 1997 from 20.3% for the comparable period of 1996. This improved
gross margin rate is principally a result of favorable changes in product mix.
Income from operations as a percentage of net sales increased to 9.5% for nine
months ended September 30, 1997 from 7.9% for the comparable period of 1996.
INTEREST EXPENSE. Interest expense decreased to $15,135 for the quarter ended
September 30, 1997
10
<PAGE>
from $77,177 in the third quarter of 1996. For the nine months ended September
30, 1997, interest expense increased to $105,419 from $91,011 in the comparable
period of 1996. The increase for the nine month period is due to borrowings
under the Company's revolving line of credit with KeyBank of Colorado during the
first half of 1997 that were required to finance the July 1996 Detaclad
acquisition and working capital requirements associated with two large orders
that accounted for a significant portion of December 31, 1996 and March 31, 1997
accounts receivable and inventory balances. Interest expense decreased
significantly in the third quarter of 1997 as line of credit borrowings, which
totaled $3,300,000 at September 30, 1996, $3,930,000 at December 31, 1996 and
$1,500,000 at March 31, 1997, were paid down to zero as of June 30, 1997 and
remained at zero throughout the third quarter of 1997.
INCOME TAX PROVISION. The Company's income tax provision decreased by 17.7% to
$217,143 for the quarter ended September 30, 1997 from $264,000 in the third
quarter of 1996. The income tax provision for the nine months ended September
30, 1997 increased 34.8% to $755,000 from $560,000 for the comparable period of
1996. For the three and nine months ended September 30, 1997, the effective tax
rate was 31.9% and 32.0%, respectively, as compared to 37.4% and 37.2%,
respectively, for the comparable 1996 periods. The lower 1997 effective tax
rates reflect the impact of tax deductions associated with the 1997 exercise of
non-qualified stock options.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has secured the major portion of its
operational financing from internally generated funds and an asset-backed
revolving credit facility. In anticipation of financing needs for the Detaclad
acquisition, the Company entered into a $7,500,000 secured credit facility with
KeyBank of Colorado in July 1996. At September 30, 1997, no borrowings were
outstanding under this facility. The credit facility has a seven-year term and
is secured by substantially all of the Company's assets, including its accounts
receivable, inventory and equipment. The maximum amount available under the line
of credit is subject to borrowing base restrictions that are a function of
defined balances in accounts receivable, inventory, real property and equipment.
As of September 30, 1997, borrowing availability under the line of credit was
approximately $6,450,000.
During the nine months ended September 30, 1997, the Company generated
$3,688,888 in cash flows from operating activities as compared to $3,835,988 for
the comparable period of 1996. The principal sources of cash flow from
operations for the nine months ended September 30, 1997 were net income of
$1,605,486, a decrease in inventories of $2,841,886 and a decrease in accounts
receivable of $438,569. These sources of operating cash flow were offset by a
$723,008 reduction in accounts payable and a $743,471 reduction in a bank
overdraft. The current ratio was 3.0 at September 30, 1997 as compared to 2.8 at
December 31, 1996. Investing activities for the nine months ended September 30,
1997 used $182,631 of net cash, including $205,477 to fund capital expenditures
(including expenditures on new computer software). Financing activities for the
nine months ended September 30, 1997 used $3,699,679 of net cash, including the
use of $3,930,000 in cash to reduce line of credit borrowings that was partially
offset by cash proceeds of $320,661
11
<PAGE>
from the exercise of stock options.
The Company believes that its cash flow from operations and funds expected
to be available under its existing credit facility will be sufficient to fund
foreseeable working capital and capital expenditure requirements of its base
business operations. However, because the Company's business has been based on a
relatively small number of large specifically negotiated contracts, the failure
to perform existing contracts on a timely basis, and to receive payment for such
services in a timely manner, or to enter into future contracts at projected
volumes and profitability levels, could adversely affect the Company's ability
to meet its cash requirements exclusively through internal sources.
Consequently, any restriction on the availability of borrowing under the line of
credit could negatively affect the Company's ability to meet its future cash
requirements. The Company plans to grow both internally and through the
acquisition of complementary businesses. A significant acquisition may require
the Company to secure additional debt or equity financing. While the Company
believes it would be able to secure such additional financing at reasonable
terms, there is no assurance that this would be the case.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A Special Meeting of the Company's Shareholders (the "Special Meeting")
was held on August 14, 1997. At the Special Meeting, the shareholders of the
Company approved the re-incorporation of the Company into the State of Delaware.
The Company had 2,711,458 shares of Common Stock outstanding as of July
7, 1997, the record date for the Special Meeting. At the Special Meeting,
holders of a total of 1,782,201 shares of Common Stock were present in person or
represented by proxy. The following sets forth information regarding the results
of the voting at the Special Meeting:
RE-INCORPORATION OF THE COMPANY INTO THE STATE OF DELAWARE
Votes in favor: 1,555,780
Votes against: 215,438
Abstentions: 3,661
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a.) Exhibits
2. Agreement and Plan of Merger, dated as of August , 1997, between the
Company and Dynamic Materials Corporation, a Colorado corporation ( a
predecessor of the Company).*
3(a). Certificate of Incorporation of the Company.*
3(b). Bylaws of the Company.*
4. Form of certificate representing shares of Common Stock of the
Company.
10(a). Form of Indemnity Agreement between the Company and each of its
directors and officers.
13
<PAGE>
10(b). 1997 Equity Incentive Plan of the Company.*
10(c). Letter agreement between the Company and Richard Santa, dated as
of October 21, 1996.
10(d). Letter agreement between the Company and Mike Beam, dated as of
January 31, 1995.
11. Statement regarding computation of per share earnings.
27. Financial Data Schedule.
(b.) None
- -------------------
*Incorporated by reference in the Company's definitive proxy statement
filed July 14, 1997.
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DYNAMIC MATERIALS CORPORATION
(Registrant)
Date: NOVEMBER 14, 1997 Richard A. Santa
---------------------------------
Richard A. Santa, Vice President of
Finance and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
16
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
2 Agreement and Plan of Merger, dated as of August , 1997, between the
Company and Dynamic Materials Corporation, a Colorado corporation ( a
predecessor of the Company).*
3(a) Certificate of Incorporation of the Company.*
3(b) Bylaws of the Company.*
4 Form of certificate representing shares of Common Stock of the
Company.
10(a) Form of Indemnity Agreement between the Company and each of its
directors and officers.
10(b) 1997 Equity Incentive Plan of the Company.*
10(c) Letter agreement between the Company and Richard Santa, dated as of
October 21, 1996.
10(d) Letter agreement between the Company and Mike Beam, dated as of
January 31, 1995.
11 Statement regarding computation of per share earnings.
27 Financial Data Schedule.
- -------------------
*Incorporated by reference in the Company's definitive proxy statement
filed July 14, 1997.
17
Incorporated Under the Laws SHARES
of the State of Delaware Common Stock
15,000,000 Shares -- $.05 Par Value
Dynamic Materials Corporation
See Reverse for Certain Definitions
This Certifies that
is the owner of Shares of the Common Stock of Dynamic
---------------------
Materials Corporation fully paid and nonassessable. Transferable only on the
books of this Corporation in person or by attorney upon surrender of this
Certificate property endorsed. This Certificate is not valid unless
countersigned by transfer agent. In Witness Whereof, the said Corporation has
caused this Certificate to be endorsed by the facsimile signature of its duly
authorized officers and to be sealed with the facsimile seal of the corporation.
Dated
- ----------------------------------- --------------------------------------
Secretary President
<PAGE>
DYNAMIC MATERIALS CORPORATION
The corporation has more than one class of stock authorized to be issued. The
corporation will furnish without charge to each stockholder upon written request
a copy of the full text of the voting powers, preferences, qualifications and
special and relative rights of the shares of each class of stock (and any series
thereof) authorized to be issued by the corporation as set forth in the
Certificate of Incorporation of the corporation and amendments thereto filed
with the Secretary of State of Delaware.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MINACT -- (Cust) Custodian (Minor)
---------- ------------
under Uniform Gifts to Minors Act (State) Additional
--------------
abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
Please Insert Social Security or Other Identifying Number of Assignee
/ /
(Please print or typewrite name and address of assignee)
------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the capital stock represented by the within Certificate,
and do hereby irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the
within named Corporation with full power of substitution in the premises.
Dated
------------------------------------
Signatures Guaranteed X
-------------------------------------
By X
------------------------------------ -------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED NOTICE: THE SIGNATURE(S) TO THIS
BY AN ELIGIBLE GUARANTOR INSTITUTION ASSIGNMENT MUST CORRESPOND
(BANKS, STOCKBROKERS, SAVINGS AND LOAN WITH THE NAME(S) AS WRITTEN
ASSOCIATIONS AND CREDIT UNIONS WITH UPON THE FACE OF THE
MEMBERSHIP IN AN APROVED SIGNATURE CERTIFICATE IN EVERY
GUARANTEE MEDALLION PROGRAM), PURSUANT PARTICULAR, WITHOUT
TO S.E.C. RULE 17Ad-15 ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into this day of
------ ------------,
1997 by and between Dynamic Materials Corporation, a Delaware corporation (the
"Corporation"), and ("Agent").
--------------------------
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his
capacity as of the Corporation;
------------------
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as
---------------
of the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
after the date hereof, the parties hereto agree as follows:
- ------------------
AGREEMENT
1. Services to the Corporation. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
of the Corporation or as a director, officer or other fiduciary
- ---------------
of an affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. Indemnity of Agent. The Corporation hereby agrees to hold harmless and
indemnify Agent to the fullest extent authorized or permitted by the provisions
of the Bylaws and the Code, as the same may be amended from time to time (but,
only to the
<PAGE>
extent that such amendment permits the Corporation to provide broader
indemnification rights than the Bylaws or the Code permitted prior to adoption
of such amendment).
3. Additional Indemnity. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement and any other
amounts that Agent becomes legally obligated to pay because of any claim or
claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitration,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of the
Corporation, or is or was serving or at any time serves at the request of the
Corporation as a director, officer, employee or other agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent by the
Corporation under the non-exclusivity provisions of the Code and of the Bylaws.
4. Limitations on Additional Indemnity. No indemnity pursuant to Section 3
hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an accounting of profits
made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(b) on account of Agent's conduct that was knowingly fraudulent or
deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a breach of Agent's
duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both the
Corporation and the Agent have been advised that the Securities and Exchange
<PAGE>
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Corporation, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers vested in the
Corporation under the Code, or (iv) the proceeding is initiated pursuant to
Section 9 hereof.
5. Continuation of Indemnity. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitration, administrative
or investigative, by reason of the fact that Agent was serving in the capacity
referred to herein.
6. Partial Indemnification. Agent shall be entitled under this Agreement to
indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.
7. Notification and Defense of Claim. Not later than thirty (30) days after
receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at its own
expense;
(b) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense
<PAGE>
thereof, the Corporation will not be liable to Agent under this Agreement for
any legal or other expenses subsequently incurred by Agent in connection with
the defense thereof except for reasonable costs of investigation or otherwise as
provided below. Agent shall have the right to employ separate counsel in such
action, suit or proceeding but the fees and expenses of such counsel incurred
after notice from the Corporation of its assumption of the defense thereof shall
be at the expense of Agent unless (i) the employment of counsel by Agent has
been authorized by the Corporation, (ii) Agent shall have reasonably concluded
that there may be a conflict of interest between the Corporation and Agent in
the conduct of the defense of such action or (iii) the Corporation shall not in
fact have employed counsel to assume the defense of such action, in each of
which cases the fees and expenses of Agent's separate counsel shall be at the
expense of the Corporation. The Corporation shall not be entitled to assume the
defense of any action, suit or proceeding brought by or on behalf of the
Corporation or as to which Agent shall have made the conclusion provided for in
clause (ii) above; and
(c) the Corporation shall not be liable to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which shall not be unreasonably withheld. The
Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. Expenses. The Corporation shall advance, prior to the full disposition
of any proceeding, promptly following request therefor, all expenses incurred by
Agent in connection with such proceeding upon receipt of an undertaking by or on
behalf of Agent to repay said amounts if it shall be determined ultimately that
Agent is not entitled to be indemnified under the provisions of this Agreement,
the Bylaws, the Code or otherwise.
9. Enforcement. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim for
indemnification is made under Section 3 hereof (other than an action brought to
enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.
<PAGE>
10. Subrogation. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. Non-Exclusivity of Rights. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
12. Survival of Rights.
(a) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. Separability. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. Amendment and Termination. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. Identical Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but
<PAGE>
all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.
17. Headings. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
(b) If to the Corporation, to:
Dynamic Materials Corporation
551 Aspen Ridge Drive
Lafayette, Colorado 80026
Attn: Secretary
or to such other address as may have been furnished to Agent by the
Corporation.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
DYNAMIC MATERIALS CORPORATION
By:
----------------------------------------
Paul Lange
President and CEO
Agent Print Name and Address:
- -------------------------------------------
Name
- -------------------------------------------
Address
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
Signature
[DYNAMIC MATERIALS CORPORATION LETTERHEAD]
October 21, 1996
Rick Santa
6910 Pawnee Way
Niwot, Colorado 80503
Dear Rick:
It is with great pleasure that Dynamic Materials Corporation extends this offer
of employment for the Chief Financial Officer/V.P. of Finance position. We are
confident that this position will provide an exciting professional challenge and
opportunity for personal growth.
The offer of professional employment is as follows:
1. Salary: $10,000 per month.
2. Incentive Stock Option on Hire Date: 25,000 ISOs for shares of DMC's
common stock. Option price is set at prevailing market value on the
acceptance date of this agreement, with a four (4) year vesting schedule.
All Incentive Stock Options are subject to final approval by the Board of
Directors.
3. Future Incentive Stock Options: The Board of Directors shall annually
evaluate performance and consider offering additional incentive stock
options based on performance criteria to be determined at these times.
4. Bonus: A discretionary cash bonus may be paid annually as deemed
appropriate by the Board of Directors, predicated on achievement of
performance objectives set by the Corporation. The targeted amount of the
bonus for the first year of employment is thirty percent (30%) of the
starting salary as above. This amount may be pro-rated to coordinate with
existing schedule of bonus awards, normally in February of each year.
5. Auto Allowance & Expenses: Upon employment, DMC will provide a leased 1996
Volvo company vehicle, fully fueled and insured.
6. Payment for the business portion of the use of a cellular telephone.
7. Discretionary/Executive Benefits:
a. Additional supplemental term life insurance policy valued at $300,000.
b. Participation in the Long-Term Disability Insurance Program, based
on insurance carrier's standard inclusions and exclusions.
<PAGE>
c. Three (3) weeks of vacation per year until such time as length of
service merits additional time in accordance with company policy.
d. Severance: Twenty-six (26) weeks' salary will be granted for
involuntary termination without cause or change of control of the
Company.
8. Other Group Benefits:
a. Health insurance, dental insurance, term life insurance coverage,
and short-term disability insurance consistent with the normal terms
and conditions as afforded other employees of DMC.
b. Participation in DMC's 401(k) retirement program after six (6)
months of employment, with a company matching contribution of fifty
percent (50%) for up to eight percent (8%) of gross earnings.
This is an offer of employment and should not in any way be construed as an
employment contract. This offer is contingent on the favorable results of the
pre-employment background investigation, drug screen, and credit verification.
This offer of employment shall become effective upon commencement of your duties
as Chief Financial Officer, which is expected to occur no later than Monday,
October 28, 1996.
On behalf of Dynamic Materials Corporation, we look forward to your acceptance
of this offer and look forward to your contributions, participation and
leadership.
Sincerely,
Paul Lange
President and Chief Executive Officer
Dynamic Materials Corporation
I, Rick Santa, understand and accept the terms and conditions of this employment
offer.
/s/ Richard Santa 10/26/96
- ----------------------------------- --------------------------------------
Name Date
-2-
[EMPIRE INTERNATIONAL LETTERHEAD]
January 31, 1995
Michael Beam
108 Briarwood Court
New Hartford, NY 13413
Dear Mike:
It is with great pleasure that Empire International, on behalf of its client,
Dynamic Materials Corporation/Explosive Fabricators, Inc., offers you a new
career situation as Vice-President of Marketing & Sales. We are certain that
this position will afford an exciting professional challenge and opportunity for
personal growth.
The offer of professional employment is as follows:
1. Salary: $8,916.67 per month.
2. Incentive Stock Option on Hire Date: 18,000 ISOs for shares of DMC's
common stock option price at prevailing market value on the acceptance
date of this agreement.
3. Future Incentive Stock Options: The Board of Directors shall annually
evaluate performance and consider offering additional stock options on
performance criteria to be determined at these times.
4. Bonus: A discretionary cash bonus will be paid annually as deemed
appropriate by the Board of Directors, predicated on achievement of
performance objectives set by the Corporation. The targeted amount of the
bonus for the first year of employment is twenty-five percent (25%) of the
starting salary as above.
5. Moving Expenses: DMC is hereby stating its intent with respect to the Beam
family's relocation costs. An amount of $30,000 will be paid for
relocation costs incurred directly as a result of relocation to Colorado.
This money will be paid on the following condition: The payment will be
evidenced as an unsecured Promissory Note payable to DMC three (3) years
hence. If you choose to leave DMC prior to the note's maturity date,
monies will be repaid to DMC on a pro-rata basis.
6. Auto Allowance & Expenses: A company vehicle, fully fueled and insured,
will be provided by DMC upon employment.
7. Other Group Benefits:
<PAGE>
(a) Health insurance, dental insurance, term life insurance coverage,
and short-term disability insurance consistent with the normal terms
and conditions as afforded other employees of DMC.
(b) Participation in DMC's 401(k) retirement program after six (6)
months of employment, with a company matching contribution of fifty
percent (50%) for up to eight percent (8%) of gross earnings.
8. Payment for the business portion of the use of a cellular telephone.
9. Discretionary/Executive Benefits:
(a) Additional supplemental term life insurance policy valued at $200,000.
(b) Participation in the Long-Term Disability Insurance Program, based
on insurance carrier's standard inclusions and exclusions.
(c) Three (3) weeks of vacation per year until such time as length of
service merits additional time in accordance with company policy.
(d) Severance: Twenty (20) weeks' salary will be granted for involuntary
termination without cause.
This offer of employment shall become effective upon commencement of your duties
as Vice-President of Marketing & Sales, which is expected to occur no later than
March 31, 1995.
Please let me know if there is anything Empire International can do to assist
you and your family during this transitional period. Congratulations and good
luck!
Sincerely,
C. Victor Combe, II
President
CVS/mjs
cc: Paul Lange
President & Chief Executive Officer
Dynamic Materials Corporation/Explosive Fabricators, Inc.
Accepted: /s/ Michael Beam
--------------------------------
Michael Beam
EXHIBIT 11
DYNAMIC MATERIALS CORPORATION
Statement Re: Computation of Net Income Per Share
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding............................. 2,714,371 2,527,000 2,669,434 2,516,796
Common stock equivalents resulting from
the application of the treasury stock
method to the assumed exercise of
outstanding stock options............... 166,520 173,657 209,782 152,933
---------- ---------- ---------- ----------
Total................................ 2,880,891 2,700,657 2,879,216 2,669,729
========== ========== ========== ==========
Net income..................................... $ 462,921 $ 441,318 $1,605,486 $ 945,318
========== ========== ========== ==========
Net income per share........................... $ 0.16 $ 0.16 $ 0.56 $ 0.35
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 16,288
<SECURITIES> 0
<RECEIVABLES> 5,977,539
<ALLOWANCES> 239,519
<INVENTORY> 1,986,942
<CURRENT-ASSETS> 8,649,379
<PP&E> 5,911,443
<DEPRECIATION> 2,862,537
<TOTAL-ASSETS> 13,149,481
<CURRENT-LIABILITIES> 2,868,205
<BONDS> 102,169
0
0
<COMMON> 135,877
<OTHER-SE> 10,016,030
<TOTAL-LIABILITY-AND-EQUITY> 13,149,481
<SALES> 25,462,599
<TOTAL-REVENUES> 25,462,599
<CGS> 19,677,769
<TOTAL-COSTS> 19,677,769
<OTHER-EXPENSES> 3,364,495
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105,419
<INCOME-PRETAX> 2,360,486
<INCOME-TAX> 755,000
<INCOME-CONTINUING> 1,605,486
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,605,486
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
